Card 11 / 16: Identify the most accurate statement. A price floor will have the largest effect if it is set:
a.)
substantially above the equilibrium price
b.)
slightly above the equilibrium price
c.)
slightly below the equilibrium price
d.)
substantially below the equilibrium price
Answer:
a.) substantially above the equilibrium price
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It will have a lesser effect if it is slightly above the equilibrium price. This is illustrated in the next figure.
It will have no effect if it is set either slightly or substantially below the equilibrium price, since an equilibrium price above a price
floor will not be affected by that price floor. The following figure illustrates these situations.
Sketch all four of these possibilities on a demand and supply diagram to illustrate your answer.
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